I. Introduction
Accounts receivable are handled today primarily using manual systems with fragmented processes and procedures surrounded by ad-hoc credit, uncollected finance charges, and inflexible terms.
The biller typically mails an invoice to the payer who responds by sending a check in the mail back to the biller. There is no specified date for the payer to authorize payment and then to pay. Payers typically pay around 30 days or so after receipt of invoice but there are no hard and fast rules. Some payers pay later, which leads to problems between biller and payers. Payers may not have the money at the time billers are insisting on payment, and sometimes this leads to comments such as “the check is in the mail” by the payer. Billers will frequently assess a finance charge if payment is not received within a stated time period, but this charge is usually not enforced. Collection procedures by billers usually involve phone calls and messages to payers and are unpleasant for both the biller and the payer, particularly where there is a client relationship at stake.
Some billers, in an attempt to collect receivables sooner, along with some payers who want a price discount, will agree to terms, such as 2% 10/net 30. This means the biller provides a 2% discount on the invoice amount if paid in 10 days, with no discount if paid in 30 days. Practically speaking, the biller usually does not receive funds within 10 days, given the time it takes to receive the check in the mail, make the deposit, and then have funds available, particularly for out-of-town checks.
II. Description of Related Art
At present, there are a variety of business-to-business payment systems to choose from, including: credit cards, factoring, the electronic funds transfer (“EFT”) system, the Trade Acceptance Draft (“TAD”) system, and electronic bill payment services.
A. Credit Cards
Some businesses take credit cards for payment by other businesses. The biller, in return for paying a discount percentage on sales (typically 2 to 3%) to the credit card company, gets cash in several days from the credit card company, while the payer typically has 20 to 30 days to pay the credit card company. Many companies, however, don't have or accept credit cards and some billers don't want to ask for credit card payment since it indicates they don't trust the payer. Furthermore, payers prefer the flexibility to delay payment past 30 days without a fee, which is not an option with credit cards.
For credit card companies, another drawback with credit cards is the lack of a nonrepudiable commitment by the payer to pay the amount of a bill to the intermediary (i.e., the credit card company) in the future. A nonrepudiable commitment is a promise by a promisor (e.g., a payer) to a promisee (e.g., a financial intermediary) to perform an act (e.g., to pay the intermediary) on a future date specified by a contract between them, where the promise cannot be denied unless the promise was obtained by fraud. In practice, there may also be a small window of time after the nonrepudiable commitment is made where the promisor can cancel the commitment, for example where the commitment was made by mistakenly activating the wrong button on a computer. The lack of a nonrepudiable commitment is also a major drawback for a biller because a payer can refuse to pay a bill to the credit card company, which may result in the biller experiencing a charge back and not getting paid. The present invention overcomes this drawback by having the payer sign an agreement with the intermediary in which he agrees to pay the amount of any invoice he directly authorizes the intermediary to pay, thereby eliminating the possibility of the payer later denying his obligation to pay the intermediary.
Yet another drawback of a credit card system is that if a payer cannot pay the third-party intermediary, the intermediary experiences a financial loss and/or must send the account to collection, which has a negative impact on the intermediary's revenue. The present invention overcomes this limitation by having billers sign a legally binding agreement in which they agree to pay the third-party intermediary the amount of an invoice if the invoice is not paid by the payer, which significantly reduces the intermediary's possibility of loss due to nonpayment of an invoice.
B. Factoring
Some biller businesses with significant short term needs for cash will use a factoring company to factor their accounts receivable. This means the business turns over all or a portion of its receivables to the factoring company in return for getting cash from the factor company. The amount of cash is based on the receivables amount less a discount percentage, typically in the 5% to 20% range based on the nature of the industry and the quality of receivables. The factoring company then also has the responsibility to collect on outstanding receivables, and this essentially places the factoring company in an adversarial relationship with the customer of the biller and the biller loses control of the customer relationship for receivables.
In the factoring system, billers are often required to sign up all their customers to a system in which another company does invoicing and serves as the collection agency to settle disputes regarding payment. The biller typically gets 75% to 80% of their invoice amounts up front and the remainder once the invoice is paid by the payer. Payers typically have 30 days to pay invoices. The factoring system is similar to credit cards in its limitations and shortcomings concerning the nonrepudiable commitment to pay an invoice. The payer does not make a nonrepudiable commitment to pay the third-party intermediary.
C. EFT
A few business-to-business payments are also conducted via electronic funds transfer using the Automated Clearing House (“ACH”), primarily recurring payments that are paid on a regular schedule and with an amount that does not vary over time. There are systems, which enable business-to-business transfers via the ACH. These systems primarily replicate payments mailed through the post office, with the advantage that payments are made on particular dates. These systems do not provide funding, nor do they provide an automated system for receivables management including automated invoicing, collections, and financing terms.
D. TAD
The TAD system, described in U.S. Pat. No. 5,694,552, is a financial process in which financial instruments called Trade Acceptance Drafts are bought and sold. Sellers endorse TADs, which are sent to a financial organization that purchases the TADs from the sellers. Once the financial organization purchases the TAD, the financial organization pays a major percentage of the purchase price to the seller. Unlike the present invention, where billers and payers sign payment agreements only with the third-party intermediary, in the TAD system buyers and sellers are required to execute bilateral agreements with all trading partners, which makes the system very cumbersome. Furthermore, with TAD, the intermediary does not directly receive the commitment to pay. Rather, the biller receives the commitment and transfers it to the intermediary. This adds to the cumbersome nature of the TAD system.
E. Electronic Bill Payment Services
With electronic bill payment services, members sign up to have their bills paid by a third-party intermediary system. Unlike the present invention, where payers are allowed a float in paying the amount of the bill to the third-party intermediary, in the electronic bill payment services collection from the payer and payment to the biller is simultaneous, i.e., the payer is not given a “float.”